ECB: Euro area fiscal aid boosts growth and lowers inflation in 2022

In a pre-release of its economic bulletin published on Tuesday, the European Central Bank (ECB) revealed that the fiscal support provided to the euro area economies amidst the Russia-Ukraine war is boosting the bloc’s GDP while temporarily lowering inflation, per Bloomberg.

Key takeaways

“The total stimulus measures in response to the war are estimated to have an impact of almost 0.4 percentage points on overall growth and a limited impact of just over 0.1 percentage point on inflation.”

“Efforts should be made to increasingly target energy-related measures to vulnerable segments of the population.”

Market reaction

At the time of writing, EUR/USD is off the 1.0215 low but remains 0.24% lower on the day at 1.0234. The pair bears the brunt of risk aversion market conditions, thanks to the escalating US-China tensions over Nancy Pelosi’s visit to Taiwan.

Meanwhile, EUR bears retain control, as money markets now suggest the ECB will be forced to stop before it reaches 100 basis points, compared with bets for more than 200 basis points overall as recently as July 21. The change in the market’s expectations for potential ECB tightening is based on the renewed recession fears and persisting European gas crisis.